Commentary and musings on the complex, fascinating and peculiar world that is securities regulation

Monday, October 27, 2014

Key Senators Say CFTC Must Work with FERC on Oversight of Energy Markets

Three U.S. Senators are profoundly disappointed by the CFTC’s settlement with a former hedge fund trader who sold massive volumes of futures contracts in order to manipulate the price of natural gas and make illicit profits. In a letter to CFTC Chair Tim Massad, Senators Dianne Feinstein (D-CA), Maria Cantwell (D-WA) and Carl Levin (D-MI) said that the CFTC’s fine of a mere $750,000 is an embarrassment, especially considering that the hedge fund trader would have been fined $30 million by FERC had the CFTC not intervened. Noting these actions, the Senators raised concerns about whether the CFTC’s authority as currently exercised can effectively regulate energy markets and prohibit market manipulation.

Specifically, they have two primary concerns. The first is that by intervening in this case the CFTC subverted Congressional intent to expand FERC’s regulatory and enforcement authority. The second is that the Commission undermined FERC’s case knowing that the CFTC’s existing statutory authority would result in an enforcement action of significantly less impact than what FERC’s authorities would have enabled. The result is unacceptable, emphasized the Senators. After undermining FERC’s $30 million fine, the CFTC settled for a $750,000 fine and failed to secure an admission of guilt from the trader.

The Senators asked the CFTC to provide an explanation for its actions and respond to their concerns by October 24, 2014. The CFTC should submit an action plan outlining in detail how the Commission plans to work proactively with FERC to carry out meaningful market regulation and enforcement in cases of manipulation going forward.